Investment funds suffered their third-worst month on record in October as investors withdrew £5.9b throughout the month, according to the latest figures by the Investment Association (IA).
Director or market insight and fund sectors Miranda Seath said the max exodus was driven by investors concerned about how tax changes – namely Capital Gains – would impact their assets ahead of Chancellor Rachel Reeves’ Autumn Budget.
Equity funds bore the brunt of this apprehension with £4.2bn in outflows. Global equity funds were hit with the worst outflows as investors withdrew £1.8bn, while UK-dedicated portfolios lost £1.3bn of invested capital.
October’s sizable outflows were only surpassed by March 2020 and September 2022, where investors removed a substantial £9.7bn and £7.5bn respectively.
Yet the month’s heightened outflows may balance out in the IA’s November numbers, with Calastone reporting yesterday that equity funds had their best month on record, raking in £3.1bn throughout November.
Funds investing in UK equities made net inflows for the first time since May 2021, breaking a dry spell that lasted 41 consecutive months.
Calastone’s head of global markets Edward Glyn said money that left the funds in the build-up to the Budget was re-invested on a greater scale once greater clarity had been given by Reeves.
This was echoed by Seath, who anticipates a more positive month in the IA’s November report.
She said: “As details became clearer on the scope and depth of the Government’s impending tax reforms, it was inevitable that some investors would make changes to avoid an increase in their tax liability, in what was an already complex investing environment.”
Though Calastone concluded that these positive gains for UK equity funds may be short lived, Seath said the clarification around policy from Reeves after the Budget spur further inflows in ensuing months.
“With the Budget now behind us and a long-term fiscal policy in place, investors have greater clarity on the path the Government will take,” she added. “For UK equities, the near-term outlook remains challenging.
“Yet, if Labour can successfully deliver the economic growth in the domestic economy it has promised, we may see green shoots of growth and with it the longer-term potential for a return to investor appetite for funds investing in their domestic market, where shares are relatively cheap compared to US company valuations.”